By Ryan Luikens News Focus Syria Thinks Small Damascus turns to microfinance to combat poverty An Industry Unraveling Once a symbol of national pride, cotton’s prospects are coming apart at the seams A New Way of Doing Business Non-profit group promotes economic development by giving companies a helping hand The Science of Buying Marketers examine the brain to find out what makes consumers tick Digital Booty With electronic piracy plaguing the music business,legitimate media companies scramble for a business model that pays A Rocky Start Theft, corruption and a little chaos mark the launch of a new property levy meant to haul the country’s tax system into the modern era Highway Robbery Reputation of white taxi program takes a hit as drivers caught rigging meters By Ryan Luikens A growing number of Egyptians are eking out a living in the informal sector.

By Osama Diab

For 12 hours a day, seven days a week, Mohamed Ahmed sits in the bathroom of a Giza shisha bar handing out napkins to patrons. The job pays the teenager about LE 900 a month, all of which comes from tips. It’s just enough to support his mother and four siblings. “I don’t like what I do, but I can’t find a job with a salary that pays even half what I make here,” says Ahmed.

Ahmed wasn’t always a bathroom attendant; he used to work in a brokerage office running errands, fixing drinks and cleaning. The job came with perks, like weekends, but he couldn’t feed his family on the LE 250 monthly salary.

So he became one of a growing number of Egyptians forsaking the formal sector for better-paying, tip-based jobs such as bathroom attendants and parking helpers.

While there are no reliable figures on the subject, experts say the numbers appear to be going up. Many blame the exodus on what they call the woefully outdated wage laws that govern Egypt’s formal economy (companies that pay taxes and register their workers in one way or another). Unchanged since 1984, the country’s minimum wage is LE 35 a month, a number that has been made irrelevant by inflation. In the government, where employees are paid according to their education level, the minimum monthly salary for a university graduate is LE 108.

Even though no one actually makes that little, the law does not obligate employers to offer a decent wage, say experts. The outdated law and high unemployment — and therefore large supply of eager workers — have conspired to keep wages down.

Official unemployment figures hover around 10% and are on the rise due to the economic downturn. Some academics say that the real unemployment rate could be as high as 40%.

Ahmed El-Sayed El-Naggar, an economist at the Al-Ahram Center for Political and Strategic Studies, thinks the wage system in Egypt is one of the worst in the world. “It forces people to take bribes and steal because it’s impossible to live off one’s income,” he says.

There has been a push over the last two years to have the minimum wage raised. In late 2007, President Hosni Mubarak ordered officials at the National Council of Wages to come up with a new minimum.

El-Naggar, a union consultant at the time, was a central player in that effort — he authored a proposal to raise the minimum wage to between LE 600 and LE 800. “Even that is very low,” says El-Naggar. “But [workers] could not hope to get all their rights at once.”

The drive unraveled less than a year later. Facing the possibility of nation-wide strikes, Mubarak raised wages for government workers by 30%. The government financed the outlay by increasing the price of gas, which in turn fed inflation across the board.

Public uproar prompted a spooked Finance Ministry to abandon the plan to raise the minimum wage — officials worried it could trigger runaway inflation, says El-Naggar. “The Ministry of Finance decided to fund the 30% increase in wages in the worst possible way,” he says.

The migration of workers from the formal to the informal sector can been seen all over Cairo’s streets. Alia el-Mahdi, a professor of economics at Cairo University and author of several papers on Egypt’s informal economy, estimates approximately 300,000 vendors try to make a living on the capital’s congested roads.

And then there are ubiquituous sayes, the self-appointed parking marshals who direct drivers into spots around Cairo. They usually operate where parking is tricky — in front of office buildings, restaurants, cinemas and clubs. They often demand between LE 2 and LE 5 depending on the value of the parking spot. Some even give out tickets to make themselves look official. And their numbers, say drivers, are on the rise.

“They are more distracting than helpful,” says Laila Ashraf, a computer science student. “I give them money because it’s common practice, not because I think they deserve it,” she adds.

Experts say the trend speaks to a much larger problem in the Egyptian economy: the gulf between the rich and the poor.

Egypt’s economic reform plan, which really kicked off in 1994 with the formation of a new cabinet, does not seem to have done much to help the millions of unskilled workers here.

Between 2006 and 2008 the country’s GDP grew at least 7% annually, and despite the recent global economic crisis, growth figures remain positive. But that wealth remained in the hands of Egypt’s wealthiest, failing to trickle down to most people. In fact, a landmark study (see page 54) recently revealed that 90% of the country’s people were left out of the boom. Most tellingly, according to the UN Human Development Report 2007/2008, 43.9% of Egypt’s population still lives below the income poverty line (an outdated figure that puts poverty at less than $2 a day). In 1991, the figures were around 20%.

“The growth was more in the financial economy than the real productive economy,” explains El-Naggar. “The other thing is that growth is not real unless accompanied by social policies that improve the distribution of wealth through a fair waging system, a fair taxation system, and a fair subsidy system.”

El-Naggar says the minimum government wage for a university graduate of LE 108 is only enough to buy 2.5 kilograms of meat. In contrast, in 1979, a graduates’ minimum wage was LE 28, which would buy 35 kilograms of meat at the time.

“So even if we have growth, the upper class is in total control of the newly obtained wealth,” says El-Naggar, who believes there is room to raise the minimum wage. He thinks the government could fund the increase by raising the tax rate for the country’s higher income brackets.

In Egypt, there are only three tax brackets, with the highest starting at LE 40,000 a year (LE 3,333 a month). In other words, citizens making LE 40,000 pay the same rate as those who make hundreds of millions. According to El Naggar, the fewer tax brackets, the more unequal the system is. Imposing higher rates on society’s richest is a conventional way to redistribute wealth, he says.

People in the highest income tax bands in the United States, China, the Netherlands and France pay 35%, 45%, 52% and 48% of their incomes, respectively. Meanwhile, in Egypt Law no. 91 of 2005 reduced the highest income tax band to only 20% from 42% as part of the government’s tax reform plan.

Sawy Culturewheel’s latest campaign La Fakr (No Poverty) asks people not to give money on the street, the idea being to redirect those funds to fight poverty in more effective ways. Mohamed El Sawy, the founder of Sawy Culturewheel, includes street vendors in his formula. “I can’t say begging is bad but selling is okay, because then they will pretend to sell anything while what they do is actually begging.”

Advocates for the poor say it is time for Egypt to re-examine an increase to the minimum wage law and move away from band-aid solutions to poverty. “We keep complaining that there are hundreds of thousands of beggars, but we are the ones who created them,” says El-Sawy. “I am convinced that Egypt is a rich nation that would be capable of taking care of its poor people.” bt